Relative Food Prices Across Europe

This post was written by Edgar Morgenroth

Yesterday Eurostat released their annual comparison of food prices. It shows that the prices in Ireland are the second highest in the EU after Denmark. What is more worrying is that instead of coming down faster in Ireland than in other countries food prices were actually relatively higher in 2009 than in 2008 or 2007. Irish consumers pay 29.2% more than the EU average. While Italy and Finland improved their relative price levels all other Euro members disimproved. The biggest relative improvement was recorded by Iceland, followed by Sweden and Poland.

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56 Responses to “Relative Food Prices Across Europe”

  1. Rob S Says:

    Haven’t we got large taxes on Alcohol and Tobacco relative to the rest of Europe though - that part was hardly surprising.

    I am surprised about the food prices - I certainly felt the supermarket wars had brought prices down but perhaps I was just blinded by snazzy advertising.

  2. Antoin O Lachtnain Says:

    Ireland has comparatively low VAT rates on food too (i.e., most foods have no VAT on them). This should allow us to steal a march.

    My own feeling is that the main problem is the real estate market. It has been impossible for the new entrants to gain any more than a tiny foothold in the market, because they cannot get the sites they would need to grow market share. Instead, they are maximising the profitability of the stores they do have by keeping prices high relative to other markets in which they operate. I wonder what plans Lidl and Aldi have for the near future?

  3. consaw Says:

    From what I know Lidl and Aldi pay massively over the odds on land to ’set up shop’ and make profits on bare selling of food, there cheap ONLY relative to competitors close by (once again our short sightedness).
    If you were to do your shopping not comparing Aldi/Lidl to next door i.e. Tesco etc but comparing to other EU countries you would happily tell these shower to where to go.

  4. Antoin O Lachtnain Says:

    That’s the point, Lidl and Aldi don’t have enough square footage to take any greater a percentage of the market than they already have. They can sell out everything on the floor in their stores as it is. There is no point for them in dropping their food prices further. (The nature ofAldi/Lidl’s operations means that they can’t replenish the shelves while the shop is open.) I am not the Aldi/Lidl spokesman and I don’t play him on the ‘net, but I believe that if they could, Aldi/Lidl would like to double or triple their market share. To do this they would need to double or triple their floorspace for a reasonable price and then cut prices sufficiently to attract punters to fill the capacity.

  5. Kevin Hanrahan Says:

    I would recommend a full read of the extended eurostat document on this topic that is available from the eurostat website (Statistics in Focus 30/10) and a perusal of the eurostat file food_pd_prc1.

    To some degree there is a mutant Lake Wobegon effect present in some of the discussion of Ireland’s relative performance (”… where all the women are strong, all the men are good looking, and all the children are above average”).

    imho within the EU, following the accession of countries from central and eastern Europe, one would expect prices in Ireland to be above the EU average.

    When Irish prices are compared with prices in EU15 Member States that are also members of the eurozone the differences are not as stark as the headlines suggest (though it should be said for some product categories Irish prices are still on the high side).

    The example of meat has gotten a lot of airtime … how can a huge net exporter (like Ireland) have some of the highest prices … actually when you look at the data amongst EU15 eurozone members the PLI for meat in Ireland is actually one of the lowest.

  6. Michael Hennigan - Finfacts Says:

    @ Kevin Hanrahan

    Ireland was 29% above the average: Eurostat said “Netherlands, Spain, the United Kingdom, Slovenia, Malta and Portugal were up to 10% below.”

    The following was the IBEC group’s defence. The dat was in respect of 2009 and of course it was out-of-date!

    Retail Ireland Director Torlach Denihan said: “Irish food and drink prices have fallen considerably since the survey was carried out. In the last year, food and drink prices have fallen 8.6%, but today’s figures do not reflect this. Irish food prices are now back at 2006 levels.

    “Comparisons with the UK are also affected by the very high price of the euro versus sterling last year and the cutting of UK VAT rates. Since the survey was conducted sterling has strengthened considerably, UK VAT rates have increased and Irish excise rates have been cut.

    “Irish prices have fallen and retailers have responded aggressively to the new economic climate, but more needs to be done. Irish labour costs, service charges and rents remain among the highest in Europe. Government must take decisive action to get the Irish cost base back into line with the rest of Europe.”

  7. Edgar Morgenroth Says:

    @Kevin Hanrahan - yes the differences between the EU15 and Ireland are smaller but that makes Irish prices 23.1% above the EU15 average rather than 29.2%. The trend is still in the wrong direction. This is not just some strange statistic. I travel a fair bit and compare prices wherever I go - Ireland has been and is expensive. Food in Germany is considerably cheaper and often of higher quality (e.g. fruit & veg).

  8. Al Says:

    @ Edgar

    At a Lidl store in Berlin recently I checked out my favourite muesli.
    The Lidl fruit and nut meusli was 2 euros there compared to 3 here.
    33% mark out, ignoring logistics, etc.

  9. paulr Says:

    And as Michael Hennigan points out IBEC want the government to their costs to help these poor business. These poor business like the large supermarkets that brought in price cuts that have not lasted. One chain cut the price of a well know brand of coffee from 6.45 to 6.10 and had signs up saying it was a permenant price cut. The price quickly went back up to 6.45 and recently as high a 7.35 and then was reduced back to 6.45 with more signs declaring a price cut. The only thing that is been cut in Ireland permanently over the last two years is jobs and wages.

  10. Kevin Hanrahan Says:

    @ edgar @ michael hennigan

    These data on Irish retail food prices to EU average prices, in my opinion, can’t tell us much about whether or not Irish food consumers are getting gouged across the board by the multiples. As usual the truth on this subject probably lies (somewhere) between the IBEC arguments that nothing untoward is happening and those of the IFA that claim that they and Irish consumers are being ripped off. Given that the vast majority of Irish meat and dairy products are exported, means that what happens in Irish supermarkets isn’t the main determinant of Irish farm prices.

    I wish I could insert a graph here! Below is a series from the Eurostat dataset used in compiling the release that is the subject of Edgar’s post. The series is for food and non-alcoholic beverages. What it shows is that most of the deterioration in the price of food and non-alcoholic beverages s in Ireland’s relative to the average of the EU15 occurred in the period prior to and just after the introduction of the euro. Since 2002 the Irish price level relative to the EU15 average has deteriorated a little but not hugely given the higher level of general inflation in Ireland during the best/worst of the “tiger” years.

    1995 1996 1997 1998 1999 2000 2001
    90.4 91.6 104.1 101.6 103.1 109.4 111.8

    2002 2003 2004 2005 2006
    118.4 119.5 118.2 118.6 117.9

    2007 2008 2009
    118 121.1 121.8

  11. Ronan L Says:

    HICP data, which run to May 2010, rather than mid-2009 as per this survey, suggest that Ireland has actually seen a pretty remarkable competitive readjustment since mid-2008, about the same size as Finland’s earlier in the decade but that took about seven years, compared to two.

    Still, I wonder which of the many stories we hear, island nation, high wages, large margins, etc., actually holds the most water.

  12. Rory O'Farrrell Says:

    One thing this shows is that repealing the grocery order was a complete waste of time.

    The arguments for repealing the order were at best weak, but Micheal Martin decided it was better to follow the advice of fellow Corkman and non-economist Eddie Hobbs.

  13. Competitiveness regained? How prices in Ireland compare to the rest of the eurozone | Ronan Lyons Says:

    [...] On Monday, Eurostat published the latest in its series on relative price levels across Europe. The press release outlines the relative cost of food, drink and cigarettes. Unsurprisingly, the fact that Ireland came close to the top of the list has generated headlines across all major media, as well as on sites such as Irish Economy. [...]

  14. Ronan L Says:

    @Rory
    Or put another way - repealing the groceries order certainly didn’t harm Irish customers… and probably created jobs.

  15. Edgar Morgenroth Says:

    @Ronan L - of course the EUROSTAT data only go to 2009 and there has been further adjustment, but I don’t think our relative position in 2010 will be that much different to the one for 2009 - prices right now are still a lot lower in Germany.

    @Kevin Hanrahan - if you read my post again, you will see that I referred to the impact of the Euro. Some of the relative changes are driven by exchange rate issues and that has to be kept in mind. However, our relative position disimproved since 2007, when I would have expected it to improve.

  16. EWI Says:

    @ Ronan Lyon s

    repealing the groceries order certainly didn’t harm Irish customers… and probably created jobs

    I see a ‘probably’ in there. Did repealing the groceries order magically make Irish people eat more food in total? Because otherwise reason would suggest that job ‘creation’ by the likes of Lidl is outweighed by the impact on small local businesses (to say nothing of the supply chain) that they affect.

  17. Mossy Heneberry Says:

    Why did consumers put up with higher prices in the first place? The best course of action is to shop around and hoard items you use on a regular basis.

  18. Rory O'Farrell Says:

    @ Ronan L

    I would argue that repeal of the groceries order did harm consumers, raised prices, reduced overall competitiveness and cost jobs. Also, the ban on below cost selling didn’t apply to things like vegetables (shops could sell them off below cost rather than be left with rotting stock).

    Though I’m sure in Ireland is more expensive, I wonder how well quality is adjusted for. Luckily, in Ireland people don’t degrade themselves by drinking UHT ‘milk’, though the do on Continental Europe. I wonder if Eurostat considers UHT ‘milk’ as equivalent to good fresh wholesome milk from happy grass fed cows.

  19. Garry Says:

    This groceries order ‘debate’ reminds me of a comment from a TD on one of the radio shows this morning. The topic was on the stag hunting bill and he said that far more important stuff needs to be on the agenda… rightly…. but launched into some point on the politicians being able to overturn refusals of bank lending to SME’s

    All that having a political committee (whether directly filled with politicians or indirectly with their cronies) with such powers will achieve is

    1) A few more well paid jobs for the boys.
    2) More power to a state qango with no accountability.
    3) Extra costs imposed on business, borrowers or savers to pay for this
    4) Extra opportunities for corruption & cronyism. If my business needed a loan and such a committee was in operation then turning up at the local FF cuman meeting and buying a few rounds wouldn’t hurt. Chances are the TD’s nephew is on the committee.
    5) Extra costs to the taxpayer as the bank will quite reasonably insist that the state indemnify them on losses on loans they refused and were overruled
    6) Now the bank will refuse more loans as they have a sucker to pay out if they overruled and if they lose.
    7) The circle is complete as now only connected businesses get loans.

    Instead of the obvious, let whoever is loaning the money make the decision, but let them be accountable….. let failed banks fail.

    Similarity to the groceries order. A well meaning order where the state (which is largely staffed by people with no commercial nous) tries to mind read businesses and war game what happens when someone wins the competition. This results in an ‘arms race’ of bullshit such (hello money etc) to get around regulations…
    Instead of understanding that competition needs to be set up to there will be no permanent winners….. ensure it will always be there with a framework where new entrants will always be welcome and cartels are dealt with.

    e.g. The FSA should be doing roadshows trying to bring healthy banks in to Ireland to let the failures fail….. Same as the competition authority should have been in Lidi’s boardroom doing a roadshow on grocery margins years ago instead of trying to stop people selling stuff at a loss.

    Instead politicians of different hues here seem to want more control, whether disguised as regulation, or disguised as protecting local business against evil multiples etc.

  20. Stuart Blythman Says:

    I would be interested in seeing price comparisons across other sectors. When I worked in the DIY retail area a newspaper did a comparison North & South and we came out quite well. That was about 4 years ago, we even put a copy of the article in our shops. If the price difference in say hardware, clothing, electrical who face the same rent, labour and utilities issues isn’t as great then it would pose the question why not.

    On the other hand I went to the cinema in Belfast recently to see Avatar and paid £4 with no charge for the 3D glasses. My daughter went in Dublin and was charged €7.50 plus €2.50 for the glasses (which she got to keep).

  21. Kevin Hanrahan Says:

    @ Stuart Blythman

    PLI data for other sectors are available on the Eurostat website. The file can be found by following this path on their data navigation tree

    Economy and finance\ Prices (prc)\ Purchasing power parities (prc_ppp)\ Purchasing power parities (PPPs), price level indices and real expenditures for ESA95 aggregates (prc_ppp_ind)

    You will also need to find the following text files “indic_na” and “aggreg95” on the Eurostat website that explain the codes in the files. If you have problems finding these I can provide them.

  22. Ronan L Says:

    @Rory, @EWI (and to a lesser extent @Edgar)
    The evidence doesn’t seem to back up the claim that repealing the groceries order hurt Irish consumers. As per my blog post this morning (linked above), the damage was done to Ireland’s relative price competitiveness between 2000 and 2003, when Ireland went from 13% above the eurozone average to 21% above.

    Over the following five years, Irish prices treaded water, so to speak. Since 2008, we have tumbled pretty rapidly back down to 16% above, an unprecedentedly swift downward movement in the albeit brief history of the eurozone.

  23. Edgar Morgenroth Says:

    @Ronan L - I have only commented on the relative food price series, which shows that in relative terms we are still considerably more expensive than even the EU-15 average and that our relative position has deteriorated over the last two years. There is no doubt that prices have fallen in Ireland but according to the Eurostat data I referred to above for food they have also fallen elsewhere. You are absolutely right in pointing to the fact that the damage was done some time ago. What puzzles me is that for some (if not indeed many) items Ireland is still massively more expensive. Rents are likely to explain some of the difference but no all.

  24. Ronan L Says:

    @Edgar
    True - some combination of (a) transport costs, (b) rents, (c) labour costs, (d) insurance, and perhaps even (e) greater capacity to charge more ceteris paribus, either because of less competition or because of willingness to pay for Irish goods.

    The latter has to be a consideration given the prices Eurostat looked were for goods where the popular perception, in Ireland at least, is that our homegrown stuff is good quality (milk, bread, cheese, meat, alcohol…).

  25. Edgar Morgenroth Says:

    Ronan L - transport costs might matter for high volume/weight - low value products but elsewhere they are trivial as a percentage of total retail cost. Anecdotally one hears of very high mark-up.

  26. The Alchemist Says:

    @Kevin Hanrahan

    Beef and dairy has been high in Ireland almost forever it seems. I can buy most steak cuts cheaper in Italy than I can in Ireland. Fresh milk is not wildly different in price, though the Italians aren’t mad for it. Many readers not not know that the Italians import a great deal of bull beef from Ireland, usually from specialist suppliers who ‘finish’ the steers on meal for the last ninety days before export or slaughter. These are generally killed between 12 and 18 months - not 24 to 30 which is the standard in Ireland. The Italians generally won’t choose silage or exclusively grass finished beef - which give the muscle a characteristic dark color and can yellow the fat - doesn’t seem to bother Irish consumers. A kilo of ‘T-bone’ cut will cost anywhere between €13 and €18 depending on quality, age etc,., which is cheaper than Irish over-the-counter prices. Finishing on meal costs more than finishing on grass plus some meal, so why are prices to the Irish consumer so high here? Slaughters say the cost of disposing of fifth quarter material is exorbitant, plus the fact that people won’t eat the traditional front end cuts.

    (BTW: Lamb is more expensive in Italy as it is killed at 40 days locally, or imported, and tends to be milk fed, but pork is most definitely cheaper - which is expected as maize and soya bean (the latter contains the essential amino acid lysine) are grown extensively in Italy.

  27. Kevin Hanrahan Says:

    @athe alchemist I don’t disagree with you that the eurostat data indicate that in 2009 that the Irish meat baskey was more expensive than Italian meat basket.

    However, prices in ireland for meat haven’t always been higher than in Italy. If you download the dataset I referenced in a earlier comment and divide the Irish PLI for meat by the Italian PLI you will see that until 2000 the Irish meat basket was actually lower than the Italian one. Things in ireland have since gotten more expensive. In 2009 Irish meat prices were 8% higher than in Italy.

    In terms of retail beef price comparisons I would suggest that you surf over to the cso website and take a look at the monthly data on Irish retail prices (in euro) for beef. These would suggest (based on your prices of Italian T-bone) that prices in Italy and Ireland are not radically different (the Irish average price in April 2010 of sirloin was just over €13/kg).

    Your point about lamb prices points to an important issue to remember when comparing retail meat price levels in different countries the meat products might come from the same species but that doesn’t mean that the associated retail products are the same. Irish ham isn’t parma ham and Irish (heavy) lamb isn’t the same as Italian (light) lamb.

    At the farm gate cattle prices in Ireland are lower than in italy. Last weeks average r3 young bull price in Ireland (€305.1/100kg) was 8% lower than the R3 young bull price in Italy. This reflects in part the lower costs of production in Ireland.

    At the retail level, as most of the comment in relation to this point has acknowledged, prices in Ireland are higher than the average EU level. Ronan L’s suggestions as to why prices in Ireland have increased relative to those elsewhere in the EU (in 2009 they were 10% higher than the EU15 average) probably explains much of the increase. How much of the increase is due to increased margins at the retail level we don’t know, though as Edgar mentions above anecdotally one hears of high margins in food retailing in Ireland.

  28. The Alchemist Says:

    @Kevin Hanrahan

    In terms of retail beef price comparisons I would suggest that you surf over to the cso website and take a look at the monthly data on Irish retail prices (in euro) for beef. These would suggest (based on your prices of Italian T-bone) that prices in Italy and Ireland are not radically different (the Irish average price in April 2010 of sirloin was just over €13/kg).

    Thanks for that information. I wonder is this comparing like with like (in grade and breed terms)? In some cases factory hung meat for the Irish supermarkets might be as little seven days, maybe 14 and at pinch in the ‘up market’ shops 21 days. Ivan Yeates pointed out over 15 years ago that the ‘Holsteinisation’ of the Irish beef herd was degrading quality. Was he listened to?

  29. Joseph Says:

    Talking of relative costs, I see that Harry Clifton is the new Ireland Professor or Poetry. The Irish Times reported it thus:

    “During his three-year tenure, Clifton will be attached to Trinity College, Queen’s University in Belfast and University College Dublin in turn.

    There is no obligation to compose any poetry…”

    Do POP’s (Professor of Poetry) get paid the same as POE’s (Professor of Economics)? I think we should be told.

    Are POE’s obliged to produce anything?

  30. Adrian Says:

    @ Ronan, @ Edgar - this study (http://www.forfas.ie/media/forfas081222_retail_running_costs.pdf) examines the composition of retail business costs in Ireland and determines how their cost base compares with retailers in other countries. It finds that while operating costs are on average 25 percent higher in Dublin than in Belfast, they account for a relatively small share of total costs (circa 20-25%). The analysis highlights that higher operating costs in Ireland add approximately 5-6 percent to the total cost base of retailers in Dublin versus those operating in Belfast.

  31. Paul MacDonnell Says:

    Businesses pay ALL local taxes…so the retailers are simply collecting these as a stealth tax via their pricing…there are other explanations but that’s part of it.

  32. Alan Matthews Says:

    I am coming late to this discussion because of other commitments, but let me summarise some of the salient points made in the thread above and add a few comments of my own.

    First, Antoin’s point that most Irish foods are zero-rated for VAT purposes, so that if we were to look at the Eurostat price relatives on a tax-exclusive basis, Irish food prices would look even less favourable than they do, bad as the figures are. It would not be right to increase the Irish price relative by 21% (as the mirror image of a tax-exclusive comparison) because presumably if VAT were imposed on food, some of the incidence would be borne by the supply chain and not all would be passed on to final consumers. But even if we were to assume that only half were passed on to final consumers (allowing also for the fact that not all foods and non-alcoholic berages are excempt), it would be sufficient to make Irish food the most expensive in the European Union. Or to put it the other way round, if we adjust the price comparison to a tax-exclusive basis, this would probably put Irish food prices at the top of the league.

    Second, Kevin points out that the trend in Irish prices relative to other MS prices has not been even. In 1995, relative to the EU-15, the Irish price level for food and non-alcoholic beverages stood at 90.4. By 2001 we were at 111.8 and by 2002 we were at 118.4. Since then there has been relatively little change to the figure of 121.8 (Thx, Kevin, for the link to the annual data series going back to 1995. In my Morning Ireland interview yesterday morning, I had only looked at the Statistics in Focus data which start in 2001, and thus missed the sharp divergence in price trends in the six years prior to that).

    The first issue to sort out is how much of what is happening behind these figures is due to the way food markets operate, and how much to general economic trends during the Celtic Tiger period. One way to do this is to compare the trends in the price relatives for food and non-alcoholic beverages with the comparative price level indices for GDP for EU-15=100. This identifies factors affecting the Irish food market which are distinct from developments in the economy as a whole, both expressed relative to developments in these price levels in the EU-15. Expressing the data as the ratio of the food price relative to the price level relative, the data are as follows:

    1995 101.7
    1996 100.7
    1997 105.2
    1998 104.3
    1999 101.7
    2000 104.5
    2001 101.8
    2002 106.3
    2003 105.5
    2004 105.0
    2005 103.8
    2006 102.9
    2007 105.2
    2008 105.4
    2009 108.6

    What conclusions might be drawn from these figures? First, while the series bounces around a lot, there was a clear jump in 2002 which was the year Ireland adopted the euro which is a factor Kevin identifies as important in driving relative food prices. But then we would have to argue that food prices were more sensitive to adoption of the euro than prices in general, and one wonders why that would be the case?

    Looking at averages to smooth out the fluctuations, the average difference between the difference in food prices and prices in general between Ireland and the EU-15 was 3.3% in the period 1995-2002 and 5.2% in the period 2003-2009. This suggests that specific food market factors have contributed more to the divergence between Irish and EU-15 prices in the later period compared to the earlier one.

    Finally, it is worth drawing attention to developments between 2008 and 2009. The ‘raw’ comparison of food price relatives between these two years in Kevin’s figures is 121.1 for 2008 and 121.8 for 2009. If we control for the general improvement in our overall price level vis a vis other MS in 2009 compared to 2008, then the deterioration in food market performance is even more stark, with my index moving from 105.4 to 108.6.

    This is all the more puzzling given the food price announcements in 2009. In May 2009 Tesco announced their ‘change for good’ campaign to counter cross-border shopping. This included sourcing products direct from the UK suppliers rather than from Irish agents to get the benefit of a depreciating sterling as well as new ‘planograms’ in store. In announcing results for their sales figures to February this year, Tesco Ireland claimed that it cut prices of 12,500 products by an average of 20% since May 2009 (Irish Times, 20 April 2010). Other supermarkets and fascia chains claimed to have followed suit; for example, SuperValu claimed in June 2009 that it had introduced price cuts which would cut the price of an average weekly trolley of goods by 23 per cent (Irish Times, 30 June 2009).

    Now, it is true that, in absolute terms, Irish food prices did fall in 2009 compared to 2008, from 111.0 to 107.2. Indeed, this was the government’s and IBEC’s position on the Eurostat figures yesterday (quoted by Michael Hennigan in his comment above) when they claimed that food and drink prices had fallen by 8.6% last year. But what the price relative series tells us is that food prices in other EU-15 MS also fell, and even by a little bit more. The most obvious candidate for this trend is that agricultural prices in 2009 were coming off the rebound from the extraordinary high price spike in 2007-08, so there is little evidence of any effect of Irish retailers pricing strategy in these figures.

    Why this should be the case would be the subject for another post!

  33. Dave Says:

    This meat discussion has been surprisingly interesting!

    I was wondering, though, if the high cost of meat in Ireland doesn’t have as much to do with the fact (or at least my perception) that Irish people increasingly buy their meat from supermarkets rather than the butchers.

    In my experience, butchers’ meat is almost always cheaper than that in Tesco and its competitors. There’s no real reason why this should be - and anecdotal evidence suggests that supermarkets in the UK do indeed sell cheaper meat than the local butchers do.

    Could it be that (a) Irish people are a bit thick and buy inferior meat for more money, or (b) that Tesco’s distribution line, which works very well in the UK and Europe but is arguably redundant on a small island like Ireland, imposes needless extra cost on farm produce? I’d certainly like to see Tesco’s meat and dairy margins compared with Dunnes or Superquinn, and whether the indigenous companies actually make bigger margins.

  34. Danny Haskins Says:

    With regards to milk the European dairy farmers have consistently been getting a price higher than or the same as Irish diary farmers. Even today the Italian farmers are getting 32 cent a litre compared to 27 cent here (May prices). Over the last 18 months EU 15 farmers have got the same or higher price every month

    http://www.dairyco.org.uk/library/market-information/datum/eu-milk-prices—dg-agri.aspx

    Farmers aren’t getting a big cut of the milk price, someone else is.

  35. Kevin Hanrahan Says:

    @ Alan
    thanks as usual Alan for the clarity you bring to discussions of ag and food market issues.
    In the early years of this decade there were a few “shocks” that pushed prices of agricultural and perhaps Irish food prices around a bit. I’ve gone back and looked at the farm level price indices. The FMD outbreak of 2001 caused Irish farm gate lamb prices to rocket while the second BSE “crisis” also pushed up the price of all meats other than beef in 2001. In a well functioning market we would have expected the price of the meat component of the food basket to go up … but since these farm gate prices fell back in 2002 we would expect other prices in the supply chain to have responded similarly. Obviously they didn’t.

    It migh be worth looking at these and the equivalent data in levels using Stephan von Cramon-Taubadel’s [European Review of Agricultural Economics, 1998(1):1-18] asymmetric price adjustment model to see whether there have been upward revisions in the retail price in response to positive price shocks and no (or more limited) downward movement in retail prices to farm level price declines (negative price shocks).

    von Cramon-Taubadel found evidence for such behaviour in German pig meat market prices and they (from the data this post has been discussing) look pretty good relative to Irish prices. If we find such asymmetries then we then have to explain why they are present. As you say Alan a topic worth of another post!

  36. The Alchemist Says:

    @Dave

    I suspect many consumers do not realize that reductions on perishable products such as fruit and vegetables offered by the supermarkets are frequently borne by the supplier.

    I don’t have any data on Irish meat cuts preferences, but front end beef cuts are out of fashion as well as most beef offal (though contrast between a butchers’ window in Thomas Street and one in Blackrock is still interesting). Same is largely true for pork. Lamb fares better. Ignoring the rendering regulations, most of the unwanted cuts are shared out between commercial burgers, low quality mince, and dog mince - and canned products. There must be an economic cost to rejecting these cuts and offal.

    Another point is that Irish importers have increasingly concentrated on stocking saleable no-waste cuts, e.g. the famous ’striploin’. A gradual shift away from unprocessed carcass importation. Finally, the Celtic Tiger carried away many native butchers and boners from the meat trade. The factories responded by importing more labour and meat and rejigging their product lines to take account of changing tastes.

    Perhaps, the neatly wrapped polystyrene supermarket tray isolates the consumer overly much from the farm to fork trip.

  37. Alan Matthews Says:

    @Kevin

    Its an interesting idea which does seem supported by some evidence. I recall when food prices, particularly beef prices, increased dramatically in the early 1970s. The government asked the NIEC at the time to investigate and it provided evidence both of price averaging (across cuts) and price smoothing (over time) by butchers. The argument would be that food retailing is more likely to respond to shocks in input prices in an asymmetric way, such that it raises retail prices when food prices go up but does not reduce them (or reduces them by less) when food prices are coming down.

    Of course, if such behaviour is characteristic of food retailers in general (and the bigger ones such as Tesco operate in multiple national markets) it still leaves open why Irish food prices have climbed by more than food prices in other MS, and why they have diverged more from trends in general prices in Ireland compared to other MS.

    Possible candidates for an explanation are:

    1. Retail food prices reflect levels of service (convenience vs discount stores) as well as quality differences (fresh vs UHT milk). It may be that at least some Irish consumers put a greater value of these attributes than consumers in other MS. In support of this thesis, there was a good piece in the Irish Times by an NUIM economist (was it Jim O’Leary?) some years ago based on CSO food price data highlighting the huge differences in prices for apparently the same product even in the same store, let alone across different stores and different geographic regions (http://economics.nuim.ie/staff/documents/IrishTimes54.pdf). This argument suggests that Irish consumers do not shop around, but also that they do not want to shop around. The greater importance of discount stores in other MS also highlights the service component. This issue also highlights the possibility of measurement error in the data given the difficulties of comparing like with like goods across countries.
    2. The cost of doing business is higher in Ireland than in other countries. There is some evidence of this, as shown in the Forfas study quoted above. But while this helps to explain some of the differences in the food price relative, it does not help to explain why we are more expensive for food than for other goods and services. Another issue which may help to explain this is the greater role of ‘mom and pop’ stores in southern Europe and the dominance of immigrants in the grocery convenience store sector in nothern Europe, both of which may mean that labour costs are particularly low in some sectors of food retailing in other MS.
    3. Greater profit-taking in the retail sector in Ireland compared to other MS. Figures on this are by definition difficult to come by, but the anecdotal evidence suggests it exists. The Competition Authority has investigated the structure of food distribution, but it has not formally investigated the degree of competition that exists.
    4. Structural issues in the distribution chain, such as lower population density and the fact that many food products have to be shipped across the Irish Sea and enter an independent logistics chain, whereas larger markets elsewhere can benefit from economies of scale in distribution.

    I don’t have any suggestions as to relative importance of these items, I suspect all play a role.

  38. Edgar Morgenroth Says:

    @Alan - great comments.
    I suppose one of the problems in identifying the underlying causes for the relative differences is that we can’t see the underlying data, and we need to consider the relative structures of the food retail sector across countries. You raise an interesting issue regarding quality/specific comarison (e.g. fresh milk vs. UHT). This could give rise to big differences for certain products and some countries eg. milk wrt. southern European countries. However, I am not convinced that we get better quality and in fact I think it is the other way round for quite a few fresh food items. One way or another this is an interesting question that deserves a bit more thought and analysis.

  39. Trevor Donnellan Says:

    @Danny Haskins

    We need to remember that consumers buy dairy products rather than milk and that aside from drinking milk these dairy products are somewhat heterogenous. A far higher proportion of Italian milk is converted to higher value added products (premium cheese varieties) than would be the case with Irish milk which tends to go to more generic products.

    Italy is not self sufficent in milk while Ireland exports 80% of what it produces.

    Taking the above into consideration is it perhaps less surprising that Irish farm milk prices are lower than those in Italy or much of Continental Europe.

    BTW - Take care in making monthly price comparisons given the strong seasonality in Irish milk production. A simple average over 12 months can be misleading.

  40. Trevor Donnellan Says:

    @ Alchemist:

    You express concern for the Holsteinisation of the Irish herd. Its worth remembering that most beef in Europe comes from dairy breeds and that Ireland is a somewhat unusual exception in having a large specialist beef herd.

  41. Edgar Morgenroth Says:

    @Trevor Donnellan - perhaps not that unusual. In French supermarkets you can choose between Charolais, Limousin or other beef (in the interest of keeping to economics I say no more).

  42. The Alchemist Says:

    @Trevor Donnellan

    The Irish beef specialization is quite small. Most Irish beef breeds are crosses with dairy strains put to a beef bull. Hereford and Angus crosses used form the bulk of good quality aged beef sold in local butchers. Charolais, Limousin and Belgian Blue crosses have edged these out. They kill out at a higher weights and put on muscle more quickly with a reduced fat-to-muscle ratio. In my opinion they are too lean. Both the French and Italians have beef strains that are more sheltered from contamination with dairy genes. The big French beef breed is the Saler (sorry, I am sure my spelling is off) and for the Italians the Chiannina.

    I had a suckler herd of Angus crosses in my salad days, and a deal of dry stock, so this is not off the bag of a fag box musing. Anyway I have drifted way out of economic territory.

  43. Danny Haskins Says:

    @Trevor.

    Accepted that more of, say, Italian, milk goes into value added products like cheese rather than butter or SMP. I wish we did better and I have always been sceptical of Ireland’s 80/20 seasonality meaning we have to produce commodities from milk rather than value added. You can’t stop provided markets with yoghurt because you have no milk in December.

    That said the report was comparing liquid milk prices in shops so there is a comparison to be made. But as a previous comment said, alot of European milk is UHT with a shelf life of months and is inevitability cheaper

  44. Dan Deveny Says:

    “Irish consumers pay 29.2% more than the EU average.” The actual report said the prices are 29.2% higher. This does not necessarily mean we actually pay 29% more, rather the averaged price is this much higher, what retailers attempt to charge. The method and its flaw were explained here
    http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BE-06-002/EN/KS-BE-06-002-EN.PDF

    “Prices to be collected
    4.49. The object of the price surveys is to collect the
    prices that purchasers actually pay to sellers to acquire
    the goods and services specified on the final
    group product list at the time of the survey. In other
    words, the intention is to collect actual transaction
    prices. Experience shows that it is neither practical
    nor cost effective to collect such prices from purchasers.
    The prices are collected from sellers instead.
    Most sellers display the prices at which they
    are prepared to sell their products. But the prices at
    which products are offered for sale are not necessarily
    the prices at which they are actually sold.
    Unless price collectors have access to scanner
    data, they cannot collect actual transaction prices.
    Rather, they have to collect the prices that purchasers
    would have to pay if they were to actually
    purchase the goods and services specified at the
    time of the survey. ”

    This is not just a pedantic comment as I have noticed a growing trend/culture of “half price” and “buy one get one free” offers in recent years here. Tesco.ie currently have 218 half price offers shown and hundreds of other offers, in other european supermarkets I have not noticed this as much. I would like to see the actual data they collected. If I went to tesco today and got the average price of a pizza I expect it could well be 29% higher than average, however the empty sections in the freezers will be the ones on offer, and they usually have plenty of them.

  45. Edgar Morgenroth Says:

    @Dan Deveny - you make an interesting point.

    Of course the consumers do not necessarily pay the regular price. However, you seem to assume that Ireland is the only country in which such special offers are available. To see that that is not the case you only have to travel north of the border, and ideally north of Newry (there have been fewer special offers in Newry as the cross border shoppers were buying everything at regular prices).

    Irish supermarkets did not invent these special offers and they are and have been available in most countries. In other words unless you are saying (and can prove) that there are more special offers in Ireland (I very much doubt that) then the comparisons referred to above are a good reflection of the actual difference in prices to the consumer.

  46. Alan Matthews Says:

    @Dan

    A sceptical attitude to the underlying data is always healthy and at face value this seems a justified point. It would be interesting to have a CSO view on how they address this kind of problem. A related issue is between discounters where the price of chicken fillets might be on average lower, but you have to buy a packet of 6 together, compared to a full service supermarket where you can ask for a single fillet over the counter. The sampling and statistical issues in these price comparison surveys must be horrendous, and I seem to remember that the NCA biannual food price comparisons (now stopped) were subject to the same criticism as you have made.

  47. Cormac O'Sullivan Says:

    In what I hope is just an unfortunate blip, food and non-alcoholic beverage prices actually increased by 0.4% in the month of May according to the latest figures from the CSO. Prices of all goods have been increasing month on month since January, and the rate of decline in annual change has slowed significantly.

  48. Edgar Morgenroth Says:

    @Alan & Dan - the big issue (assumption) is that the same approach to the collection of the underlying data is taken in all countries (with respect to regional variations, types of shops and quality of the product) - otherwise we are comparing apples with oranges. Incidentally, this is also an issue for the production of our own consumer price index. The usual approach is to take a represenative sample of shops across the country (to take account of regional variation) and different types of shops. Given the kind of differences I have noticed in comparing the prices for exactly the same products in exactly the same type of shops across a range of countries, I have some confidence in the Eurostat data.

  49. Dan Deveny Says:

    “In other words unless you are saying (and can prove) that there are more special offers in Ireland (I very much doubt that)”

    -Yes I accept that point, but it is just in recent years here I see an huge increase in these half price offers here. I remember years ago “half price” offers being a really good deal, these days it seems the practice is to over inflate the asking price so when the do cut it then it seems a better deal. I can provide no proof (that is what eurostat should have done but they took the cheap & easy option) but when I do go abroad I do like to browse in supermarkets and have just not noticed the same extraordinary amount of (apparent) deals like in Irish supermarkets of late. The UK seem to have adopted the same practice as us too.

    I do think it is feasible that we have an unusually high occurrence of offers here, if they showed the data you might notice it, e.g. if there was a much large price differential here. This happens in the fastfood takeaway market here -just look at the takeaway pizza market -half price/buy one get one free offers are constantly available, while I have never once have seen an offer in a Chinese or Indian takeaway. The Italian chippers had a half price day and there were queues down the streets, as it was a genuine deal. The big pizza places have all seemed to copy each others tactics, just like supermarkets here are now all jumping on the half price bandwagon.

    “NCA biannual food price comparisons (now stopped) were subject to the same criticism as you have made.”
    I remember seeing the actual data on one of their reports. If there was an offer/discount they ignored it and took the price as being the original undiscounted price which is usually shown on the display price. This was biased against supermarkets who use the marketing strategy of pricing stuff high for a few weeks and then having a supposed large reduction on the item. I think in the data I saw tesco would have been top of the list if offers were accepted, but otherwise dunnes topped the list. I do notice far more offers in tesco than dunnes.

    This study is saying the average price retailers attempt to charge is 29% more. The recent forfas study comparing the republic to NI was also misinterpreted by the media, some sloppy journalists concluded that the report inferred the cost of goods at the till in the republic should only be 5-6% more than in NI. While if you read the actual report it said not such thing, it talks about cost base being 5-6% more. It took no account of the fact that manufacturers/wholesalers are charging huge amounts more for goods here. If the average wholesale prices of goods to the retailers were taken into account then you would have got a very different figure about how much extra you could expect to pay at the actual till.

  50. The Alchemist Says:

    @Dan Deveny

    Italian supermarket chains regularly have products on ‘promo’.

  51. Carrawaystick Says:

    I wonder how the milk prices in Ireland vs France are measured. In my local convenience shop here, I can get 2l of fresh milk for 1.49, while in any Carrefour Hypermarket I doubt I’d get 1l and much change for the same price. unless the eu count unrefrigerated uht milk as the same and even that’s probably more expensive, and not really milk.

    Also why is only the price of the poison tobacco mentioned? surely this is a poisonous substance with no useful purpose bar subsidies to farmers growing it in France?
    Even Heroin has a use as pain relief, but tobacco?

  52. The Alchemist Says:

    @Carrawaystick

    Milk, it may surprise you you, is a highly processed product. At its most basic, processors aim to hold the amount of milk fat (butter fat) pretty much constant all year round. In traditional farming, the vagaries of lactating cows through the seasons and so on, this wasn’t remotely possible. In practice, this means that fat is added or subtracted from milk as needs be to keep the percentage constant (I think in Ireland it was around 6.5% but that could be completely wrong). So the amount of fat in your homogenized milk influences the price. The more fat, the more expensive I bet. I think UHT milk has a reduced fat composition - it may even have a different arrangement of soluble fats to aid preservation. Sorry the science is long behind me.

  53. Danny Haskins Says:

    @Alchemist

    Milk isn’t that processed. It has to have a minimum of 3.5% fat (non skim milk) so all the processors do is pasteurise and remove fat (for cream or butter) as cows virtually always produce milk of over 3.5% fat.

    If milk from cows falls below 3.5% cream from low fat milk is introduced. Coincidently this Spring/early summer has seen butter fat in milk fall to it’s lowest level in years due to grazing conditions.

    The 6.5% you have in mind probably is butter fat and protein

  54. Edgar Morgenroth Says:

    @Dan Deveney - I grew up in Germany (a long time ago) and there were regular special offers and the discounters have been around for a long time too. There are obvioulsy some changes in the Irish retail sector especially due to the discounters and in the border area due to cross border shopping (which is down very substantially). As you said above, the actual price paid by consumers matters rather than the regular price.

    @Carrawaystick - the price for fresh milk in France is not that different to here (recent trip to France), but the quality (taste) was not as good. Fresh milk is cheaper in Germany and I have bought higher quality milk (from cows kept on mountain pastures supplied in glass bottles that tasted great) at a lower price than the standard milk here (I did not even buy it in a big supermarket but a convenience store in the centre of Munich).

    There is a tendency for those connected to the interest groups to get overly defensive. Instead of simply doubting the quality of the data it would be considerably more useful to look at the costs of production and intermediation.

  55. Carrawaystick Says:

    Edgar, what were the prices per litre you paid in Germany and France?
    74.5c is a fairly widespread price here.

  56. Scorpio Says:

    You can buy one litre of organic milk for 89c at Aldi (Sud) in Germany - you can check out some of their prices on the net.

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